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European shares rose on Tuesday helped by stronger defensive stocks as the focus turned to the start of the reporting season which is expected to deliver double-digit earnings growth for the third quarter.
The pan-European STOXX 600 index was up 0.4 per cent by 0834 GMT, after hitting a 22-month low in the previous session on the back of rising US Treasury yields and a mix of geopolitical tensions. Despite the bounce some caution remained after a turbulent start of October that saw the STOXX 600 post on Friday its biggest weekly loss since February. The index remains down 7.4 per cent so far this year.
“Investors are... struggling with the ongoing US-China trade war, Brexit talks, Italy's budget clash with Brussels, EM slow down, and the most recent geopolitical tensions between Saudi Arabia and the US,” said FXTM strategist Hussein Sayed.
Defensive and cheaply valued stocks such as utilities and telecoms led sectoral gainers with Italian utility Enel up 3.4 per cent and Germany's Deutsche Telekom up 0.7 per cent, while autos also rose strongly despite emission woes hitting Volvo shares.
About 6 per cent of STOXX 600 companies are due to report results this week with the earnings season passing its mid-point during the first week of November. Overall, third-quarter earnings for the index are expected to have risen 14 per cent, according to Refinitiv I/B/E/S data, while euro zone earnings are seen up 12 per cent. That compares to the 21.6 per cent growth seen for US companies.
Meggitt was among the biggest gainers in Europe, up 5.6 per cent after the engineering firm upgraded its 2018 organic revenue growth guidance, boosted by higher demand for its wheels, brakes, fuel tanks and other aeroplane parts.
Shares in other aero-defence stocks were also gaining: Airbus, Safran and BAE Systems all rose between 1 and 2 per cent. Bellway also rose after the British housing developer launched a cost savings programme and reported a more than 14 per cent rise in full-year pre-tax profit.
Other updates on Tuesday, however, disappointed investors. BAT fell 1.3 per cent after the world's second-biggest tobacco company cut its full-year revenue target for next-generation products, citing a flat market in Japan and a product recall in the United States.
Merlin lost 6.7 per cent after its trading update where the tourist group highlighted a disappointing summer performance of its Legoland business. Mapping company TomTom fell 10 per cent as worries over the loss of a contract with Volvo overshadowed a strong update.
Volvo fell 5.3 per cent after the Swedish company warned that some truck engines could be exceeding emission limits because a component was degrading more quickly than expected.
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